EU could impose sanctions if no deal with Italy, but no decision yet - Moscovici

BRUSSELS (Reuters) - The European Commission could impose sanctions on Italy as a last resort if they cannot reach an agreement over Rome’s rule-breaking budget, but Brussels wants to avoid that option, the EU’s economics commissioner said on Tuesday.

FILE PHOTO: European Economic Commissioner Pierre Moscovici talks to journalists during a press biefing after a weekly college meeting of the European Commission in Strasbourg, France, October 23, 2018. REUTERS/Vincent Kessler

Last month, the Commission rejected Italy’s budget, saying it was in blatant breach of European Union fiscal rules and could further increase the country’s huge pile of public debt.

“I was never in favour of sanctions. Sanctions are always a failure,” Pierre Moscovici told reporters on the sidelines of a meeting of EU finance ministers.

But when asked about Italy, the euro zone’s third biggest economy, he added: “I want a dialogue, but sanctions can be finally applied if we cannot reach an agreement.”

Moscovici said no decision had been taken yet on how to proceed because Italy still had a week to change its budgetary plans before a Nov. 13 deadline.

“On the 13th of November we expect a strong, precise answer from the Italian government,” Moscovici said.

Italy’s Finance Minister Giovanni Tria reiterated on Monday that the budget would not change and that a planned larger deficit for next year would not increase the public debt, which tops 130 percent of gross domestic product.

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If there is no change to the budget, EU officials have said the Commission is likely to react at its Nov. 21 meeting by issuing a critical report on Italy’s debt, the first step in a disciplinary procedure against the country.

Commission Vice President Valdis Dombrovskis said later on Tuesday that the EU executive was considering sanction proceedings against Italy for its high debt if it did not introduce “substantial” changes to the budget.

The Commission has in the past always waited for final data on public finances, available in April, before taking any disciplinary action on euro zone states.

But this time, officials said it could instead act on its own economic forecasts, due on Nov. 8, which are expected to show a far less optimistic scenario than the 1.5 percent GDP growth in 2019 predicted by the Italian government. Estimates of lower growth would translate into a higher debt and deficit.

As a precautionary measure, Brussels could eventually ask Italy to transfer a non-interest bearing deposit of 0.2 percent of its GDP to the bloc’s rescue fund, the European Stability Mechanism.

The Commission could also set a deadline, possibly as early as February or March, for Italy to take action to reduce its debt. Euro zone governments would need to approve such measures.

Missing that deadline could trigger harsher sanctions, including a fine of up to 0.2 percent of GDP, the suspension of billions of euros in EU funds and closer fiscal monitoring by the Commission and the European Central Bank, involving missions to Italy similar to those to bailed-out nations such as Greece.

If it continued to fail to cooperate, Rome could face even stricter penalties under EU rules. They might include a fine of up to 0.5 percent of GDP, EU precautionary monitoring over Italy’s plans to issue new debt and a reduction or suspension of multi-billion-euro loans from the European Investment Bank.

Reporting by Francesco Guarascio; editing by John Stonestreet and Gareth Jones